Tuesday, 18 February 2014

Defence budgeting based on delusion

by Ajai Shukla

Business Standard, 17th Feb 14

The interim
defence budget, which raises military expenditure by 10 per cent from the
current 2,03,672 crore to Rs 2,24,000 crore for 2014-15, is merely a fiscal
bridge until the incoming government presents a final budget. With growth less
than 5 per cent, the United Progressive Alliance has tried to signal that it is
strong on national security. Yet, defence allocations remain below 2 per cent
of GDP, a low figure given India’s two-front threat perception from China and Pakistan,
and its internal security challenges in J&K, the northeast and in the Naxal
belt.

The figure
looks better --- close to 3 per cent of GDP --- if one adds spending on defence
pensions, nuclear forces and central armed police forces (CAPF) --- which
include organisations like the Central Reserve Police Force and the Border
Security Force that play essential roles in internal security. Finance Minister
Chidambaram, again strumming the “strong-on-security” chord, announced the
allocation of Rs 11,009 crore for modernising the CAPF. This is welcome, given
that the CAPF’s heavy-handedness (and that of the J&K Police) in handling
public protests in J&K in 2009 and 2010 created a national security crisis.

Directly courting
a restive ex-servicemen community, which is also being wooed by the BJP, the
government acceded to a longstanding demand for “One Rank One Pension”, or OROP.
This entitles soldiers, sailors and airmen who retired before 2006 --- when the
6th Pay Commission raised salaries and, therefore, pensions --- the higher
pensions drawn by more recent retirees for the same length of service. This
concession was not surprising since Rahul Gandhi had virtually promised OROP to
a group of army pensioners he met last Friday.

Through
OROP, the government has reached out to a constituency of 1.26 crore people, if
one counts 14 lakh serving soldiers, 24 lakh pensioners, and a family unit of
four for each. The government has long opposed OROP because full and
retrospective implementation would require a one-time pay out of Rs 3,000-4,000
crore for arrears since January 1st, 2006; and also an annual hike
of Rs 2,000 crore in the pension budget. To minimise the financial impact, the
government has dispensed with the arrears, garnering the goodwill while handing
the tab to the next government. While allocating only Rs 500 crore for OROP, the
separate defence pensions allocation has been raised substantially, from 45,500
crore this year to Rs 50,000 crore in 2014-15.

Defence
pensions are not paid from defence allocations, but this rising figure is a
reminder that growing manpower costs are blocking force modernisation. In
2013-14, just 42 per cent of the budget (it should be 60 per cent) was
earmarked for modernisation, with 58 per cent reserved for running costs. After
Rs 7,868 crore were diverted in December from the capital to the revenue
account, modernisation expenditure will fall to just 38 per cent this year. The
2014-15 defence budget also allocates 42 per cent to modernisation, a sum of Rs
92,601 crore. But the decision to raise a mountain strike corps for the China
border, which will add 80,000 soldiers to India’s already bloated 13,73,678-man
military, could again result in money meant for weaponry being eventually spent
on salaries and pensions.

Each year,
equipment modernisation is blunted by predictable events; the same patterns
dealing double and triple whammies to capital spending. Firstly, contracts
concluded during preceding years build up instalments that must be paid, and
which are known in advance. This year, the army was to pay more than Rs 64,680
crore --- 92 per cent of its capital allocation --- on pre-committed expenditures,
leaving it with just Rs 2,955 crore for new contracts. But capital allocations have
ignored this trend, leaving less and less each year for new weaponry.

Secondly, capital
expenditure is hit by any decline in the rupee. Since capital expenditure,
including instalments for equipment bought during previous years, is denominated
in foreign currency, any fall in the rupee upends the calculations.

Thirdly, in
a cosmetic exercise to reduce revenue spending, the government has shifted the
purchase of several items from the revenue to the capital account. These
include new aero engines, spares for in-service aircraft, and several categories
of trucks and vehicles. This jugglery does indeed reduce revenue expenditure,
but also leaves less in the capital account for the purchase of capital weapons
platforms that actually add to combat power.

Finally, the
most worrying aspect of defence budgeting is that the military’s long-term equipment
planning is based on fundamentally flawed fiscal assumptions. Crucial planning
documents, like the Long Term Integrated Perspective Plan (LTIPP) and the
Five-Year Procurement Plan, envision the purchase of equipment worth lakhs of
crores of rupees, without any sign of the money being available. Without a
tri-service chief to take ownership of the planning process, the LTIPP assumes
high GDP growth that has long ago slowed; a stable foreign exchange situation; it
barely caters for inflation; and assumes defence allocations of about 3 per
cent of GDP, while actual allocations are barely 2 per cent. With the basics so
out of sync with reality it is hardly surprising that, year after year,
spending is further out of line with planning and that budgeting is merely an
activity done in February that is long forgotten by December.

6 comments:

Probably, Indian Army is the only one which is growing in manpower while all world's armies are going smaller, mobile and technologically advanced. American Army is now discussing even how to reduce the size of its basic units.

In contrast, Indian Navy is just 58,000 strong, mandated to defend 7500 km of coastal border and millions of kilometers of EEZ. Chinese Navy is near about five times the size of Indian Navy. Still Indian Navy is expected to check Chinese advance in Indian Ocean. What a joke!!!

I don't know which crooked and short-sighted person is responsible for this situation. But the future, if not corrected now is quite bleak.

2004-2014 would be known as ten wasted years for national defence and St Anty as the worst defence minister of India after Menon.

ohh comeon Ajay. Dont say 2 percent of GDP or 3 percent of GDP that makes 2 or 3 become meager amount. Look at percentage of total budgeted amount. We are almost spending half of our income for Military, para military, internal & external agencies for security. !!!

Reply to Ak's remarks to St Anty is the worst. How do you judge like that do you want a Def Min like Mulayam or Mayawati (i know mayawat was not a def min). Last 10 years foreign imports of weaponry curbed to minimum becoz of Antony. He doesnt like corruption, He doesnt want to spend hard earned money for foreign toys.

Indian security situation mandates manpower over big capital expenditures. Even technology has its limits - otherwise far superior US forces would have won in Afghanistan. In certain scenarios, boots on the ground can not be substituted. Eg kashmir/Naxalites problem and porous NE border. We can have small navy as UAVs will replace many patrolling manned options. Overall I am satisfied with this budget cut.